Long-term investing

ABSTRACT

The present invention is a method, system and investment product for allocating or structuring investment assets (such as marketable securities, bonds, mortgages, or other property interests, options or derivatives). The system, method or product enables selecting or grouping a number of individual financial instruments together into a portfolio (e.g., a fund or trust) and assigning weight coefficients to the selected financial instruments based upon a predetermined scale. After assigning the weight coefficients, the system or method purchases the selected instruments based on the allocated total purchase for each instrument (i.e., the total price of each instrument reflects is the price per unit×number of units, which correspond the predetermined weight coefficient). Then, the purchased individual financial instruments are allowed to fluctuate and perform for a predetermined time period (i.e., a number of years and months) without any further significant adjustments to the initial portfolio.

This application claims priority from U.S. Provisional Application No.60/306,082 filed on Jul. 16, 2001, which is incorporated by reference.

BACKGROUND OF THE INVENTION

The present invention relates to diversified long term investing.

For centuries businesses have issued publicly traded securities to fundthe business' operating capital or enable growth. There are two basictypes of securities: bonds that represent debt, and stocks thatrepresent ownership or equity interest in the issuing business. Bondsrepresent the promise of the business to pay a fixed sum at a specifiedmaturity date plus interest at regular intervals until such date. Thereare numerous types of bonds such as convertible bonds, income bonds, orlinked bonds. Stocks (or units) give an owner a right to a share ofdividends and other distributions of the underlying business, to votefor directors and fundamental corporate changes, to inspect theaccounting books of the business, and other rights defined by thecharter and bylaws of the business as well as by the laws of the countryor state in which it is chartered.

Overall, stock markets have provided an efficient way to raise capital.Performance of the entire market or individual market sectors may bemonitored using different stock indexes. A stock index includes aselected group of stocks, wherein each stock affects the index inproportion to its relative weight. The relative weight can be selectedbased on market capitalization, market-share (i.e., number ofoutstanding shares), or price of the stocks. Thus, there arecapitalization weighted indexes, market share-weighted indexes, orprice-weighted indexes. Capitalization weighted indexes include NASDAQComposite Index ®, S&P 500®, Wilshire indexes, Equity Index®, RussellIndexes®, and numerous other indexes. Price-weighted indexes include DowJones Industrial Average®, Dow Jones Transportation®, and Dow JonesUtilities®.

Stocks, bonds and numerous other financial instruments (e.g.,derivatives, stock options, commodity futures or other options) can beheld in various types of investment funds and trusts. An investment fundincludes a portfolio of securities managed by a management company thatserves as an investment adviser (and may also serve as a custodian,shareholder, servicing agent, transfer agent or provide some othersecondary service). The management company or the investment advisorselects the financial instruments depending on the type of fund ortrust. That is, there are various types of funds including stock funds(e.g., funds that invest in domestic or international stocks, growth orvalue stocks, small, medium or large capitalization stocks, etc.), bondfunds (e.g., funds that invest in U.S government or foreign governmentbonds, mortgages, convertible bonds, low quality “junk” bonds, etc.),hedge funds, or funds that invest in two or more types of securitiessuch as both stocks and bonds.

Mutual funds, also called open-end investment funds, have existed fordecades. In a mutual fund, a shareholder owns a portfolio of financialinstruments and receives dividends on the shares that he or she holds.Any day, a shareholder can sell or redeem any of its outstanding sharesat net asset value (i.e., the price of a share equals total assets minusliabilities divided by the total number of shares) calculated at the endof a trading day. Similarly, an investor can also buy additional sharesof a mutual fund, which in turn will invest the money. Thus an open-endfund can continue to increase its asset base by selling its shares tonew shareholders and investing the influx of money in more shares.

There are “actively” managed mutual funds, where the advisor buys andsells securities based on his or her opinion about expected futureperformance. Here, the turnover ratio and thus the cost can berelatively high compared to index funds. There are also “passively”managed mutual funds where the fund advisor does not have muchdiscretion and invests in a portfolio of securities that mirror aselected market index. Thus, in these funds, the cost is usually fairlylow, but the funds have limitations related to the type of indexfollowed, as described below.

Closed-end funds include actively managed or passive portfolios ofstocks grouped according to an investment objective. Usually, after theinitial sale, shares of closed-end funds are sold on a stock exchangethe same way as stocks. Closed-end funds differ from open-end funds inthat the number of shares is fixed. There are closed-end funds where ashareholder cannot exchange shares for underlying stock, whichcontributes to fluctuation of the price of the shares sometimessignificantly above or below the net asset value. Low demand for aclosed-end fund causes closed-end shares to trade at discounts to netasset value, and high demand creates premiums to the net asset value. Inthese funds, a shareholder cannot directly take advantage of thediscount since he or she cannot exchange the fund shares for theunderlying stocks. An investment advisor actively manages the fund, andthe fund value (including any discounts or premiums) changes dependingon the market conditions and skills of the advisor. Depending on thefund management, these funds may have a high turnover rate and thus highcost.

Passively managed funds are usually low cost, as mentioned above,because the advisor does not have much discretion to trade and thus doesnot have to have a team of highly compensated managers and analysts.There are numerous index funds that hold a portfolio of securities thatmirror a selected market index. The advisor buys and sells theindividual securities only when their representation in the underlyingindex changes, when investors redeem fund shares for cash or wheninvestors purchase additional fund shares. These funds provideinvestment results that, before expenses, generally correspond to theprice and yield performance of the index. As explained below, mostindexes are heavily weighted toward large and midsize stocks.Furthermore, the indexes are periodically rebalanced, and the relativestock representation is reduced as a company grows and its stock movesfrom a micro cap index fund to a small cap index fund or to a mid capindex fund. Thus, the index funds do not effectively accumulate the bestperforming stocks because they are effectively sold as they move to alarger index fund.

Perhaps the oldest market index is the Dow Jones Industrial Average®.This index presently includes common stocks of 30 large companies. Thereare also other Dow Jones indexes such as the Dow Jones 20 TransportationAverage®, or the Dow Jones 15 Utilities Average®, or the Dow JonesComposite Average®. The Dow Jones averages are calculated by addingtogether the prices of each stock's trading on a primary exchange anddividing the sum by a divisor, which is of course different for eachindex. The index divisor depends on the stock splits and is designed tomaintain “continuity.” When a new stock is included, or corporateactions are taken (such as spin-offs, company purchases, stock splits,etc.), the divisor is changed so that the index remains unaffected. Theindividual Dow Jones averages basically include issues of largecompanies each having market capitalization of several billions if nothundreds of billions of US dollars. Therefore, mutual funds or trustsbased on the Dow Jones Averages do not include small cap or micro capstocks discussed below.

The Wilshire index family provides a good example of indexes that trackthe entire market and the individual market segments. Wilshire 5000®equity index is a market value weighted index that includes all NYSE andAMEX stocks and the most active stocks traded on NASDAQ (the totalincludes over 6,500 securities). The included issues are common stocks,REITs and limited partnerships, all of which are selected based onvolume, institutional holdings, and conversion criteria. For a companywith multiple classes of stock, all shares are combined into the primaryissue's shares to reflect the total market capitalization of thecompany. The index measures the performance of all U.S. headquarteredequity securities with readily available price data. Thus, the Wilshire5000 index encompasses virtually all of the entire U.S. stock market.

The Wilshire 4500® equity index measures the performance of all smalland mid cap stocks. This index includes the Wilshire 5000 securitieswith the companies in the Standard & Poor's 500 Index removed thusincluding over 6,000 stocks. The Wilshire 4500® equity index includescapitalization-weighted representation of the included stocks.

The Wilshire large cap 750 index measures stocks of large companies withmarket capitalization of more than about $5 billion (an approximatevalue also depending on the overall market conditions). This index is asubgroup of the Wilshire 5000 index because it represents a marketcapitalization-weighted portfolio of the 750 largest companies in theWilshire 5000 index.

The Wilshire mid cap 500 index measures stocks of mid-sized companieswith market capitalization of less than about $5 billion. Thiscap-weighted index is a combination of 500 relatively large and midsizestocks ranked based on market capitalization from 501 to 1,000 in theWilshire 5000 index.

The Wilshire small cap 1750 index measures stocks of companies withmarket capitalization of less than about $1 billion. This index iscomprised of the next 1,750 stocks ranked by market capitalization from751 to 2,500 taken from the Wilshire 5000 index. The Wilshire micro capindex measures stocks of companies with market capitalization of lessthan about $350 million. This cap-weighted index includes all stocks inthe bottom half of the Wilshire 5000 Index, that is, stocks below thecapitalization ranking of 2,501.

There are also numerous other Wilshire indexes such as the Wilshirelarge value index, the Wilshire large growth index, the Wilshire mid capvalue index, the Wilshire mid cap growth index, and other indexes. TheWilshire large value index measures large-cap stocks that exhibit valuecharacteristics (e.g. low price to book ratio). The Wilshire largegrowth index measures large-cap stocks that exhibit growthcharacteristics (e.g. high price to book ratio). Periodically, the aboveindexes are modified or “rebalanced” by adding and removing stocks. Therebalancing enables the indexes to provide a better reflection of stockmarket activity and performance. That is, rebalancing is done in aneffort to have growth stocks included in the growth index, etc.Furthermore, rebalancing ensures that changes in valuation or market capare periodically updated. The corresponding mutual funds then changetheir portfolio based on the index rebalancing.

The Russell index family is another widely recognized example of indexesthat track the entire market and the individual market segments. Russell3000® Index measures the performance of the 3,000 largest U.S. companiesbased on their total market capitalization, which representsapproximately 98% of the investable U.S. equity market by marketcapitalization. This index has a total market capitalization range ofapproximately $480 billion to $140 million (on Jul. 1, 2001, but valuesdepend on the market conditions).

Russell 1000® Index measures the performance of the 1,000 largestcompanies in the Russell 3000® index, which represents approximately 92%of the total market capitalization of the Russell 3000® Index. Thesmallest company in the index has an approximate market capitalizationof about $1.3 billion. Russell 2000® Index measures the performance ofthe 2,000 smallest companies in the Russell 3000® Index; this representsapproximately 8% of the total market capitalization of the Russell 3000®Index. In July 2001, the average market capitalization of a stock inRussell 2000® Index was approximately $530 million and the median marketcapitalization was approximately $410 million. The largest company inthe Russell 2000® Index had an approximate market capitalization of $1.4billion.

There are also other Russell indexes. For example, Russell 200® Indexmeasures the performance of the 200 largest companies in the Russell1000® Index, which represents approximately 75% of the total marketcapitalization of the Russell 1000® Index. Russell Midcap® Indexmeasures the performance of the 800 smallest companies in the Russell1000 Index, which represent approximately 25% of the total marketcapitalization of the Russell 1000® Index. Russell 2500® Index measuresthe performance of the 2,500 smallest companies in the Russell 3000®Index, which represents approximately 17% of the total marketcapitalization of the Russell 3000® Index.

Russell Small Cap Completeness® Index measures the performance of thecompanies in the Russell 3000® Index excluding the companies in theStandard & Poor's 500 Index.

Since index funds like the Wilshire 5000® and Russell 3000 are marketcap weighted, usually only 10%-15% or less of an investor's money isallocated into the smallest 90% companies ranked by marketcapitalization. The 100 largest stocks receive an allocation of above50% of the total amount invested. Generally, investors in index fundshave no meaningful exposure to micro cap, small cap or even some mediumsized companies, and frequently no exposure to many small cap or microcap companies since they are not components of they index funds own.

There are index funds that invest in micro cap, small cap and mediumsized companies, but these funds have an inherent disadvantage. As ahigh performing stock grows, its rank increases. When a high performingstock “graduates” from the Wilshire micro cap index, it is added to theWilshire small cap index. Similarly, when a high performing stock“graduates” from Russell 2000®, it is added into Russell 1000®. In this“rebalancing”, the high performing stock is “effectively sold” becauseits weighting in the new index is small compared to other members of theindex. Moreover, when a stock graduates from Russell 2000® to Russell1000®, investors in Russell 2000® no longer have any ownership interestsof that particular security. Furthermore, in each index, only a smallamount of money is allocated into the smaller components due to thedisparity in market capitalization between the largest and smallestcompanies. Thus, in an index fund, an investor cannot effectively buy ameaningful amount of a micro cap or a small cap stock and “hold” thestock as is it grows and moves from one index to another. That is, inthe above-described funds, an investor cannot fully take advantage ofsome high performing stocks by long-term ownership in a tax efficientway.

Actively managed, open-ended mutual funds generally dilute the impact ofsome of the best performing stocks because most active funds restrictthe percentage weighting for an individual stock or sector. This tootranslates into effective selling of high performing stocks because theyare not allowed to grow substantially in weight (increased ownership isartificially restricted) relative to the other stocks in the fund. Tomaintain investments in high performing companies, (i.e., allow natureto take its course) managers of open-end mutual funds would have toincrease the dollar allocation into winning stocks as new money isinvested into the fund in direct proportion to their existing relativeweight to avoid dilution by new shareholders.

Frequently, most actively managed funds that specialize in investment insmall or mid cap stocks sell the companies when they do well (e.g. theirmarket cap exceeds a certain limit). Therefore, investors typically donot hold micro cap to medium sized stocks for a long enough period to“let the winners run”. Most investment managers (advisors) usually donot hold individual stock for long periods of time. The holding periodof most stocks in “managed” funds tends to be significantly less than 3years because investment advisors try to predict future performance of astock and/or they sell any stocks that no longer fit their selectcriteria. Frequently, they sell stock of growing small companies that nolonger have characteristics in accord with the fund's objectives. Forexample, company's market cap is too large or stock is no longer a“value” stock. Thus, actively managed funds do not provide a solutionthat ensures long-term ownership of the best performing micro cap tomedium sized stocks. In turn, the investors do not accrue the benefitthat derives form long-term ownership of micro cap, small cap, or midcap stocks that grow to achieve appreciably larger marketcapitalization.

A portfolio of stocks may also be arranged in a unit trust that operatesdifferently than a mutual fund. A unit investment trust issuessecurities that represent an undivided ownership interest in theportfolio of stocks held by the trust. (For example, there are publiclytraded shares of the DIAMONDS Trust®, which holds all of the 30 commonstocks of Dow Jones Industrial Average.) In a unit trust, a trusteeissues creation units to anyone who deposits with the trustee aspecified portfolio of the securities and a cash payment generally equalto accumulated dividends. In general, the investment trust only issuesCreation Units in specified large-sized minimum numbers (for example forthe DIAMONDS Trust it is 50,000 DIAMONDS or multiples thereof). Acreation unit holder can, however, purchase and sell the units on thesecondary trading market in lots of any size. The unit holders are paidregularly an amount corresponding to the amount of any cash dividends onthe Trust's portfolio of securities during the applicable period (minusthe fees and expenses associated with operation of the Trust).

Some types of unit investment trust are structured so that the units arenot individually redeemable, and can be redeemed only by tendering tothe Trust the entire amount of the creation units (i.e., the creationunit-sized minimum number) or a multiple thereof). Upon delivery of thecreation units, the Trust delivers a portfolio of the underlyingsecurities (together with a cash payment generally equal to accumulateddividends as of the date of redemption). The trust always maintains thecorrespondence between the composition and weightings of securities heldby the trust and the stocks in the corresponding index. Specifically,the DIAMONDS Trust includes 30 common stocks that are included in theDow Jones Industrial Average. These stocks are adjusted to conform toperiodic changes in the identity of the Dow Jones Industrial Average.Importantly, each of these 30 stocks have a much larger marketcapitalization than any small cap or micro cap stock (or even most midcap stocks).

There are other investment trusts that hold a stock portfolio of aparticular industry, sector or group designed to provide a diversifiedexposure to the industry, sector or a group. For example, Merrill Lynchprovides HOLDRs® that are trust-issued receipts representing abeneficial ownership of a specified group of stocks. The owner of aparticular HOLDR owns a group of stocks as one asset, but can alsounbundle the HOLDR any time to own each of the underlying stocks. Theunbundled stocks can be traded individually to meet specific tax orinvestment goals. HOLDRs are taxed only on gains and income that theowner actually realizes. Thus, HOLDRs allow the owner to take tax lossesin any individual stock that declines and allow the owner to defercapital gains indefinitely on the best performing stocks. Furthermore,HOLDRs have a buy-and-hold feature that limits taxes resulting fromportfolio turnover.

The individual HOLDRs are exchange-traded and are priced just like anyother stock to provide liquidity. The owner retains the voting anddividend rights on the underlying stocks. HOLDRs provide a relativelyinexpensive way to own about 19 to 20 stocks. The owner doesn't paymanagement fees, but pays a transaction costs and an annual custody feetaken against cash dividends and distributions, when they are issued.

An example of a HOLDR trust is a Biotech HOLDR trust, which holds thefollowing 20 stocks (with the approximate initial weighting provided inparentheses): Applied Biosystems Group (6.67%), Affymetrix Inc (2.02%),Alkermes Inc. (0.76%), Amgen Inc. (19.76%), Biogen Inc. (9.92%), ChironCorp. (4.78%), Celera Genomics (0.77%), Genentech Inc. (18.29%), EnzonInc. (0.93%), Genzyme Corp. (2.99%), Gilead Sciences Inc. (2.97%), HumanGenome Sciences Inc. (1.77%), ICOS Corp (1.29%), IDEC PharmaceuticalsCorp. (2.49%), Immunex Corp. (8.9%), Medimmune Inc. (6.03%), MillenniumPharmaceuticals Inc. (2.35%), Qlt Inc (2.42%), Sepracor Inc. (2.68%),and Shire Pharmaceuticals Grp. (2.2%). Thus, the Biotech HOLDR trustholds midsize to large stocks (stocks above $1.5 billion to tens ofbillion). In short, each of the existing HOLDS provides a relativelylimited diversification and do not enable systematic investment in microcap, small cap, mid cap and large cap stocks across the entire market.

There are also other unit investment trusts. For example, NikeSecurities L.P. creates periodically First Trust® portfolios that areunit investment trusts holding a fixed diversified portfolio oftypically about 20 to 25 stocks in one industry or market sector. Theindividual closed-end trusts trade on public exchanges to provide dailyliquidity. The trusts typically have a life of 13 months to 5 years.Investors invest a minimum of about $10,000 (usually corresponding to100 units). At the end of the term, the investors can get securities “inkind” without incurring tax liability or can get the correspondingmonetary value. The trustee does not rebalance or does not otherwisemanage the trusts over its lifetime. The First Trust® portfolios holdgenerally large to medium size stocks typically purchased initially atan equal dollar amount of each security. Basically, each of the FirstTrust® portfolios provides a relatively limited diversification and doesnot enable systematic investment in small cap or micro cap stocks.

In summary, the above-described funds or trusts have at least somedisadvantages. Most market cap weighted funds or trusts allocate most ofthe invested money in large or very large companies. Passive, open-endindex funds allocate new money in direct proportion of the market cap ofeach company, as specified for the corresponding index. Thus, investorsmoney is usually allocated in an overwhelming fashion to companieshaving large to extremely large market capitalization. These companiestend to be more mature (and thus frequently have lower earnings growth)or tend to have higher relative valuations (i.e., very “popular”companies) than some younger, smaller, less “popular” companies. Asexplained above, small cap and micro cap index funds “effectively” sellsmall stock of fast growing companies.

Actively managed funds also tend to allocate investors' money based uponnarrow characteristics or on market capitalization and tend to have ahigh turnover ratio. They also do not hold small cap and micro capcompanies for many years to let “the winners run.” These funds also tendto restrict the relative weighting of the individual stocks. Therefore,there is a need for methods, systems and investment products that enablesystematic, long-term investing in various market sectors or segmentsincluding mid size, small cap, or micro cap companies.

SUMMARY OF THE INVENTION

The present invention is a method, apparatus and investment product forallocating or structuring investment assets (such as marketablesecurities, bonds, mortgages, or other property interests, options orderivatives). The apparatus, method or product enables selecting orgrouping a number of individual financial instruments together into aportfolio (e.g., a fund or trust) and assigning relative weighting tothe selected financial instruments. That is, the total purchase of eachinstrument (i.e., per unit price×number of units) is allocated based ona weight coefficient. The weight coefficients for the selected financialinstruments are based upon a predetermined scale. After assigning therelative weighting (i.e., weight coefficients), the apparatus or methodpurchases the selected instruments based on the allocated total pricefor each instrument. Then the purchased individual financial instrumentsare allowed to fluctuate and perform for a predetermined period withoutany further significant adjustments to the initial portfolio. Theportfolio is passive, but there may be insignificant adjustments whenthere are cash dividends (or interest payments on the instruments) orcapital market transactions (e.g., mergers, acquisitions, spinoffs, andthe like).

The present method, apparatus and investment product provide improvedreturns when compared with many prior art passive investment strategies,by systematically investing in different market cap stratas based on apreselected weighting and then maintaining the selected portfolio formany years. The present method, system and investment product enables along ownership of most successful securities without inherent problemsassociated with basing the allocation on relative market capitalizationas done in market cap weighted indexes.

The present method, system and investment product provide asubstantially passive portfolio holding financial instruments for a longperiod of time. The portfolio is substantially passive (and notnecessarily 100% passive) since a manager may allow reinvestment ofdividends, or receipt of new shares, or sale of some minor amounts ofshares from spin-offs, mergers or the like. Minor proceeds may bedistributed to shareholders, or put into a money market fund. If acertain company goes out of business, it is not replaced by anotherstock in the portfolio as is done with the index funds. If a security isexchanged for another security in the event of an acquisition, investorswould then own the new (acquirer's) shares.

The present method, system and investment product provide investors withthe ability to invest in a large number or all mid cap or small capstocks and then over time realize the aggregate investment result thatthese stocks generate. The selected stocks or securities are kept in thecreated fund or trust and are not sold due to a large increase in value(e.g., are not sold when moving from one index fund to another), nor arethey be sold because they no longer are deemed to have merit by one ormore investment managers (that is, managers may sell a security becauseit no longer has a selected characteristic, e.g., has lost momentum, istoo expensive, too large market cap, etc.). The present method, systemand investment product enable investors to know that they will own amedium size or large, diversified portfolio of securities for apredefined, known minimum time period.

The present method, system and investment product enable diversificationor improvement of investment performance and lower volatility byperiodically investing at regular intervals in the trusts or fundscreated according to construction and selection criteria describedherein.

According to one embodiment, when the portfolio is held as an investmenttrust dividends can be reinvested to replicate the experience of anowner who purchased and held and reinvested the proceeds of any stock.For example, the trust can reinvest any cash generated via “all cash”acquisitions of any company in the portfolio. Alternatively, the trustcan distribute any “all cash proceeds” directly to investors, or candeposit (i.e., re-invest) any “all cash” proceeds into a money marketfund until the trust terminates. These transactions are consideredinsignificant adjustments.

According to another aspect, an asset portfolio includes a number ofpublicly traded financial instruments purchased according tocorresponding individual weight coefficients allocated by giving thelargest allocation to an instrument (or several instruments) having thelargest market capitalization and giving the smallest allocation to aninstrument (or several instruments) having the smallest marketcapitalization in the group of selected financial instruments, whereinthe ratio of the largest weight coefficient and the smallest weightcoefficient is limited by a selected maximum, wherein the individualfinancial instruments are then maintained for a selected number of yearsregardless of market conditions. Preferably, one, two or severaladditional weight coefficients (being in size between the largest weightcoefficient and the smallest weight coefficient) are allocated toindividual instruments.

According to yet another aspect, an asset portfolio includes a number ofpublicly traded stocks purchased according to individual weightcoefficients allocated by giving the largest weight coefficient to astock (or several stocks) having the largest market capitalization andgiving the smallest weight coefficient for a stock (or several stocks)having the smallest market capitalization among the selected number ofthe stocks, wherein the ratio of the largest weight coefficient and thesmallest weight coefficient is limited by a selected maximum being lessthan 400 and preferably less than 300 or 200, and more preferably lessthan 100, wherein the individual stocks are maintained for an initiallyselected number of years regardless of performance of any one of thestocks. Importantly, when the portfolio is created, there is always aselected maximum ratio that assures meaningful representation of midcap, small cap and even micro cap stocks. In some cases, the ratio maybe 75, 50, 25 or even less depending on the criteria based on which thestocks were selected.

According to yet another aspect, an asset portfolio includes a number ofat least fifty publicly traded stocks purchased according to individualweight coefficients representing relative values between the stocks,wherein the purchased stocks are substantially maintained for aninitially selected number of years regardless of any relative change inthe market capitalization of any of the stocks.

According to yet another aspect, an asset portfolio includes a number ofat least fifty publicly traded stocks purchased according to individualweight coefficients allocated by arranging the selected stocks based ontheir market capitalization, wherein one third of the selected stockswith the smallest market capitalization is allocated correspondingweight coefficient (or weight coefficients) that assure at least fifteenpercent of the entire value of all the stocks for the one third of theselected stocks.

According to yet another aspect, a computer program product stored on acomputer readable medium includes a representation of a number of atleast fifty publicly traded stocks purchased according to correspondingindividual weight coefficients allocated by arranging the selectedstocks based on their market capitalization, wherein one third of theselected stocks with the smallest market capitalization is allocatedcorresponding weight coefficients that assure at least fifteen percentof the entire value of all the stocks for the one third of the stocks.

According to yet another aspect, a method of investing in marketablesecurities includes the acts of grouping a number of individual publiclytraded securities on an exchange; assigning relative individual weightcoefficients to the selected securities by giving a security (orsecurities) with the largest market capitalization a higher weightcoefficient than the securities that have smaller market capitalization,wherein the relative weighting does not conform to actual marketcapitalization differences among the selected securities. This methodalso includes purchasing the selected securities based on the weightcoefficients representing relative values between the securities along apredetermined proportional scale; and then allowing the individualsecurities to fluctuate for a predetermined number of years without anyfurther adjustments to the initial allocation.

According to yet another aspect, a method of creating an investmentportfolio includes the acts of selecting a number of individualfinancial instruments publicly traded on an exchange; allocatingindividual weight coefficients to the selected financial instruments bygiving the largest allocation to an instrument (or several instruments)having the largest capitalization and giving the smallest allocation toan instrument (or several instruments) having the smallestcapitalization for the selected number of the financial instruments,wherein the ratio of the largest weight coefficient and the smallestweight coefficient is limited by a selected maximum. The method alsoincludes purchasing the selected financial instruments based on theweight coefficients representing relative values between the individualfinancial instruments; and maintaining substantially the purchasedfinancial instruments for a selected number of years regardless ofmarket conditions.

Preferably, the financial instruments include one or more of thefollowing: common stocks, derivatives, stock options, commodity futures,or bonds. The selected maximum ratio assures meaningful representationfor all selected instruments.

According to yet another aspect, a method of creating an investmentportfolio includes the acts of selecting a number of stocks publiclytraded on a stock exchange, the number of stocks being larger than 50(and more preferably larger than 100); allocating individual weightcoefficients corresponding to the selected stocks; purchasing theselected stocks based on the weight coefficients representing relativevalues between the individual stocks; and maintaining substantially thepurchased stocks for a selected number of years regardless of a marketcapitalization of any of the stocks.

Preferably, the selected number of years is more than 2 years, and morepreferably more than 3 years and as long as 10, 15 or even 30 years.Alternatively, the selected number of years is the number of years toretirement of an individual (or an average number for a group ofindividuals). Alternatively, the selected number of years is the numberof years remaining until college attendance for an individual (or anaverage number of years remaining for a group of individuals). Thepurchasing act includes purchasing the selected stocks based on theallocated weight coefficients.

Preferably, the act of maintaining substantially includes allowingreinvestment of dividends into the same securities that paid thedividends. The act of maintaining substantially includes receiving newshares from spin-offs, mergers, acquisitions or the like. The act ofmaintaining substantially includes putting cash portion of proceeds intoa money market fund. Alternatively, the act of maintaining substantiallyincludes distributing proceeds to investors. Alternatively, the act ofmaintaining includes reinvesting the proceeds of an acquisition into theappropriate number of shares of the acquirer.

Preferably, the selecting act includes identifying stocks of about 1000,2000, 3000, 4000, 5000, 6000, or 7000 largest publicly traded companies.

Preferably, the selecting act includes identifying stocks of publiclytraded companies in a particular market segment or in a particularmarket sector. The sector is one of the following: technology,biotechnology, health case, information technology, telecommunications,semiconductor, energy, utilities, transportation, or any other sector(another sector).

Preferably, the act of allocating includes dividing the selected stocksinto three groups based on their capitalization and allocating the sameweight for all the stocks in each of the groups. For example, the first,second and third group includes 20 percent, 60 percent and 20 percent ofthe number of stocks in each group, respectively. The relative weightwithin each group enables further differentiation, wherein, for example,the largest companies placed in the first group receive 3× the weightcoefficient of the smallest companies placed in the third group, and themiddle companies placed in the second group receive 2× the weightcoefficient of the smallest companies placed in the third group.

Preferably, the method further includes creating a mutual fund, aclosed-end fund, a trust, a unit investment trust, or an individuallyconstructed portfolio.

The present investment products can be structured as trust-issuedreceipts that represent a beneficial ownership of a specified group ofstocks. The trust receipts are exchange-traded securities that arepriced just like any other publicly traded stock. The owner owns a groupof stocks as one asset, but may also unbundle the receipts at periodic,predefined intervals in order to own each of the underlying stocks. Thisoption, if desirable, would be initially specified when a trust or afund is created. When held as trust-issued receipts, the owner stillretains the voting and dividend rights on the underlying stocks. Theowner can tailor the ownership according to his or her tax needs bytiming the capital gains or losses. The owners of trust-issued receiptscan unbundle the receipts at periodic intervals to own each of theunderlying stocks. The unbundled stocks can be traded individually tomeet specific investment goals or tax goals (realize capital gain orcapital loss, or donate the securities).

The present trust includes one or several unmanaged stock portfoliosthat are not significantly altered over several years by additionalpurchases, exchanges or sales of the individual stocks

The present method, system and investment product provides the abilityto systematically invest in the entire market overtime without investing90% of the money in the top 1000 (or less) companies or having thefuture best performing stocks sold out of a small cap or mid cap stockfund, as these stocks grow. The present method, system and investmentproduct envisions formation of similar trusts at regular time intervals.The present method, system and investment product helps to ensureoptimal returns because more shares of future “winners” are acquiredwhen their prices are low and fewer when they are high (as is done usinganother method called “dollar cost averaging”).

The present method, system and investment product ensures that investorscan systematically invest their money so that they do in fact havesignificant and long-term ownership of all future winners. The futurewinners are often younger companies that generate substantially aboveaverage earnings gains over many years. Younger companies that achieve astream of increased earnings, sales, dividends and/or cash flow oftenare accorded a rising investment appraisal (P/E expansion) over time.The combination of healthy earnings gains plus enhanced valuationparameters translates into high stock performance. The present method,system or investment product enables investors who desire long-termgrowth of principal to systematically allocate their money in asignificant way to large number of micro cap, small cap and midsizecompanies thereby ensuring the investors' ability to capturesystematically the rewards of long-term ownership of tomorrow's highperformance stocks.

The present method and system provide investment products that are taxefficient since they allow growth of the invested capital withouttaxable events (except corporate dividends or when a security isacquired for cash by another corporation).

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 shows a computerized system for setting up and managing one orseveral long-term investment portfolios.

FIG. 2 shows a high level flow diagram illustrating a method for settingup a long-term investment portfolio.

FIG. 3 includes Table I depicting a first example of a long-terminvestment portfolio.

FIG. 4 includes Table II depicting a second example of a long-terminvestment portfolio.

FIG. 5 includes Table III depicting a third example of a long-terminvestment portfolio.

FIG. 6 includes Table IV depicting a fourth example of a long-terminvestment portfolio.

FIG. 7 includes Table V depicting a fifth example of a long-terminvestment portfolio.

DESCRIPTION OF PREFERRED EMBODIMENTS

FIG. 1 illustrates a computer apparatus for constructed and arranged toexecute and manage the present investment product. Computer system 10 isconnected to a communications network 25 for automatically setting upand managing a long-term investment portfolio (e.g., trusts, funds orsimilar investment vehicles) described below. Computer system 10includes a processor 12, a memory 14, a display 16, an interface card18, and a printer 20. Using interface card 18 connected tocommunications network 25, computer system 10 can connect to anelectronic bulletin board or the NYSE super DOT (Direct OrderTurnaround) system for trading. Computer system 10 can also connect toother computerized databases that provide share prices, bond prices,bond ratings, categories of shares, and other data related to publiclytraded companies.

Referring to FIG. 2, based on a user's input, computer system 10initiates purchase of financial instruments (e.g., stocks, bonds,options) when initially creating an investment portfolio according to analgorithm 30. In step 32, the user specifies the types of one or severalinvestment portfolios including the sizes and types of companies, thetypes of financial instruments and other information discussed below. Auser may initiate identification of a market segment, for example, 5000largest companies or 2000 smallest companies according their marketcapitalization. A user can also request computer system 10 to identifycompanies in a particular market sector such as telecommunication,pharmaceuticals, biotechnology, steel, transportation, semiconductors,computer hardware, computer software, oil and gas, chemicals, cosmetics,food and beverage, retail etc.

In step 34, computer system 10 automatically identifies possiblecandidates, calculates their market capitalization (price-to-earning,price-to-sales, book-to-price, etc.) and provides their names, and otherrelated information. Computer system 10 creates candidate portfoliodatabase (step 36). The user selects from the candidate portfoliodatabase a number of specific stocks to be included in the investmentportfolio (step 38).

Based on the user's input (or predefined criteria), computer system 10allocates individual weights corresponding the selected financialinstruments. Computer system 10 can allocate the selected financialinstruments into several groups based on their market capitalization(step 40) or other characteristics and can allocate the same weightcoefficient or different weight coefficients for each group (step 42).

For the selected financial instruments, computer system 10 may useseveral weighting schemes such as giving a larger weight coefficient toan instrument having a larger capitalization and giving a smaller weightcoefficient for an instrument having a smaller capitalization. Thisweighting scheme usually includes a selected limit for the ratio of thelargest weight coefficient and the smallest weight coefficient. Thisratio has a limit of about 500, and preferably a limit of about 250, andpreferably a limit of about 100. However, there are portfolios where thedesired preselected limit of this ratio is about 50, or 30, or as low as20, depending on the way the instruments are selected (e.g., a marketsegment or sector) and depending on the number of selected instruments.The selected limit assures a “meaningful” representation of mid size,small cap and micro cap stocks. Alternatively, another weighting schememay also be based on bond ratings, amount of debt cash flow, growthrate, price-to-earnings ratio (P/E), P/E to growth ratio, and othercriteria of the selected companies.

Computer system 10 purchases the selected financial instruments based ontheir assigned weights (step 46). In addition to large and mid sizecompanies, the purchased portfolio includes small cap or micro capcompanies having significant relative representation (based on the limitof the ratio of the largest weight to the smallest weight). Thisfinancial portfolio is maintained in the form of a selected structure(e.g., fund, investment trust) for a number of years initially selectedin step 44. This number of years is at least two years, but preferably4, 5, 6 or 7 years, or even 10 to 15 years.

The created portfolio is substantially passive for the selected numberof years. That is, the original purchase is kept for the selected numberof years regardless of market conditions or individual stock performance(i.e., stocks are left untouched by a manager thus allowing nature totake its course). The portfolio is essentially passive but the fund ortrust rules (registration, prospectus) may allow reinvestment ofdividends or receipt of new shares or sale of some minor amounts ofshares from spin-offs or mergers. Minor proceeds may be distributed toshareholders or put into a money market fund. If a certain company goesout of business, it is not replaced by another stock in the portfolio asis done with the index funds. Computer system 10 provides periodicupdates about the net asset value of the portfolio.

The above-described portfolio can have several different forms (and thusthe creation process will involve different formalities). A portfolio(as shown for example in Table I) is structured as a closed endinvestment trust. The shares of this investment trust may be sold byprivate placement or are traded on a stock exchange. The shares areeither redeemable in the form of the cash value of the underlyingsecurities or are redeemable “in kind” in the form of securities, orboth. When redeeming the shares in kind, the shareholder receives theactual securities with the original cost basis so that capital gainstaxes may be deferred. Portfolios may possibly be structured to offer“in kind” distribution at regular intervals (e.g., once per year orquarter). This would enable a shareholder to sell selected receivedsecurities to realize a tax loss or realize tax gain at their election.Alternatively, the portfolio (for example shown in Table II) could bestructured as a closed end mutual fund. The shares of this closed endmutual fund are traded on a stock exchange, but the stocks would not beredeemable in kind.

Computer system 10 can set up several different investment portfoliosover time, directed to different market segments or different marketsectors (e.g., telecommunication, pharmaceuticals, biotechnology, steel,transportation, semiconductors, computer hardware, computer software,oil and gas, chemicals, cosmetics, food and beverage, retail etc.).These investment portfolios can be bundled together.

The created long-term investment portfolio provides a platform forcapturing the long-term performance of future winners. Preferably, theinvestment portfolio invests in each stock found in two, three or moremarket cap strata. The trusts include long duration substantiallypassive, non-managed stock portfolios. In the created trusts, overlengthy periods, the impact of stocks that generate above averageperformance is significantly greater than those stocks that contributemodestly or lose value. Furthermore, the long-term investment portfolioensures that a significant amount of an investor's money is more widelyallocated among a larger number of companies compared to the market capweighted index funds that concentrate investors' capital on the basis ofcurrent capitalization.

The above-described trusts are established on a regular basis and eachunique trust has duration of a pre-selected number of years. The trustmay include one type of shares covering all included funds or severaltypes of shares separately corresponding to different funds (e.g.,shares A, B, and C corresponding to Fund A, B, and C described inconnection with Table I. The shares may be sold by private placements,on a public stock exchange, etc. Financial advisors can put these stocksinto “wrap” fee-based accounts.

Referring to Table I provided in FIG. 3, for example, an advisor ortrustee allocates money among three funds that encompass the 2500largest stocks by market capitalization in the U.S. market (and/orinternational stocks or stock of any country having an exchange). In thepresent investment system, method or product, the term fund is usedgenerically as a portfolio of stocks and is not limited to an investmenttrust or mutual fund.

Referring still to Table I, the following are some of thecharacteristics of the three trust funds. An advisor or trusteeallocates one third of the total invested funds into each of the threeFunds “A”, “B” and “C”. Fund A is made up of the 150 largest companiesby market capitalization in the U.S. market. Fund B is comprised of thenext 550 largest companies (i.e., companies 151 to 700). Finally, Fund Ccontains the next 1800 largest companies (i.e. companies 701 to 2500).In this example, the largest 20% of the companies in each Fund (i.e.,Funds A, B and C) get a weighting of 3× compared the smallest 20% whilethe middle 60% are each allocated 2× that of the smallest 20% in eachfund as shown in Table I. That is, the allocated total purchase (stockprice×number of shares) for each of the 20% largest companies is 3× theallocated total purchase (stock price×number of stocks) for each of the20% smallest companies and the weight coefficients are 3:1.

For example, each Fund A, B and C has an initial capital allocation of$250,000. Referring to Table 1 in Fund A, each Tier 1 company receivesan allocation of $2,500.00 (i.e., the total purchase of this company'sstock is its stock price×number of shares). Based on this allocation,each company in Fund A, Tier 1, receives 1.0% of the initial capital ofFund A, and allocation of 0.33% of the total of Funds A, B and C.Therefore, the 30 companies in Fund A have $75,000 allocated into them,which is 10% of the total of Funds A, B and C and 30.0% of the Fund A'sallocation.

In Fund A, each Tier II company receives an allocation of $1,666.67(i.e., the total purchase of each company's stock is $1,666.67). Basedon this allocation, each company in Fund A, Tier II receives 0.66% ofFund A's allocation or 0.22% of the total of Funds A, B and C.Therefore, the 90 companies in Tier II of Fund A have $150,000 allocatedinto them which is 20% of the total of Funds A, B and C, and 60.0% ofFund A's allocation.

In Fund A, each Tier III company receives an allocation of $833.33. Thatis, each company in Fund A, Tier III receives 0.33% of Fund A'sallocation or 0.11% of the total of Funds A, B and C. Therefore, the 30companies in Tier III have $25,000 allocated into them which is 3.33% ofthe total of Funds A, B and C, and 10.0% of Fund A's allocation.

Referring still to Table I, in Fund B, each Tier I company receives anallocation of $681.82. Therefore, the 110 companies in Fund B have$75,000 allocated into them, which is 10% of the total of Fund A, B andC, and 30.0% of Fund B's allocation. In Fund B, each Tier II companyreceives an allocation of $454.55. Therefore, the 330 companies in TierII of Fund B have $150,000 allocated into them which is 20% of the totalof Fund A, B and C, and 60.0% of Fund B's allocation. In Fund B, eachTier III company receives an allocation of $227.27. Therefore, the 110companies in this group of Fund B have $25,000 allocated into them whichis 3.33% of the total of Fund A, B and C, or 10.0% of Fund B'sallocation.

Referring still to Table I, in Fund C, each Tier I company receives anallocation of $208.33. Therefore, the 360 companies in this group ofFund C have $75,000 allocated into them which is 10% of the total ofFund A, B and C, and 30.0% of Fund C's allocation. In Fund C, each TierII company receives an allocation of $138.89. Therefore, the 1080companies in this group of Fund C have $150,000 allocated into themwhich is 20% of the total of Fund A, B and C, and 60.0% of Fund C'sallocation. In Fund C, each Tier III company receives an allocation of$69.44. Therefore, the 360 companies in this group of Fund C have$25,000 allocated into them which is 3.33% of the total of Fund A, B andC, and 10.0% of Fund C's allocation.

In summary, companies 1-30 in Fund A, Tier I have $75,000 invested inthem, which is 3.0 times more than $25,000 invested in companies 2141 to2500 located in Fund C, Tier III. Therefore, regarding the weightingwith respect to the company size, the largest ratio is $36 invested ineach company in Fund A, Tier I for each $1 invested in each company FundC, Tier III. That is, the ratio of the largest weight coefficient andthe smallest weight coefficient is 36. This is dramatically differentthan the weighting in the Russell 3000 ® or Wilshire 5000® index.

The above described Funds A, B and C include another importantadvantage. An investor can invest separately into Funds A, B or C. Forinstance if an investor already had significant holdings in largecapitalization stocks via ownership of a S&P 500 index fund (or aWilshire 5000® index fund), she may just choose to invest just in FundC. This enables an investor to diversify her holdings vis-à-vis a onetime contribution into all three Funds A, B or C or via makingcontributions into a series of these “closed end trusts” over time.

An investment trust that includes Funds A, B and C illustrates theproposed buy and hold approach. An investor can buy separately Funds A,B, or C. Funds A, B and C enable systematic investment across the broadmarket and then enable time and the laws of compounding work forlong-term investors. That is, the trust includes unmanaged stockportfolios that are not significantly altered over several years.

Referring to FIG. 4, Table II shows an example of a total marketinvestment trust. This total market investment trust includes four fundsthat include 8000 largest stocks by market capitalization in the U.S.market. (Eight thousand stocks is likely the upper limit from apractical standpoint.) Specifically, the investment trust includes fourFunds “A”, “B”, “C” and “D” having a comparable amount of money investedin stocks. Fund A includes the 120 largest companies in the U.S. market.Fund B includes the next 480 largest companies (i.e., companies 121 to600). Fund C includes the next 1400 companies (i.e., companies 601 to2000), and Fund D includes the next 6000 companies (i.e., companies 2001to 8000). In this example, the largest 25% of the companies in each fundget a weighting of 4× compared the smallest 25% (i.e., the weightcoefficients are 4:1), while the next 25% companies are each allocated3× (i.e., the weight coefficients are 3:1), and the next 25% companies2× the amount of the smallest 25% in each fund as shown in Table II.

Referring still to Table II, Fund A has companies divided into fourtiers each tier having 30 companies. In Fund A Tier I, each of the 30largest companies receives an allocation of $4000.00, in Tier II each ofthe 30 companies receives an allocation of $3,000.00, in Tier III eachof the 30 companies receives an allocation of $2,000.00, and in Tier IVeach of the 30 companies receives an allocation of $1,000.00.

Fund B has companies divided into four tiers each tier including 120companies. In Fund B, Tier I, each company receives an allocation of$900, in Tier II each company receives an allocation of $675, in TierIII each company receives an allocation of $450, and in Tier IV eachcompany receives an allocation of $225. Similarly, Fund C has 1400companies divided into four tiers each tier including 350 companies. InFund C, Tier I, each company receives an allocation of $300, in Tier IIeach company receives an allocation of $225, in Tier III each companyreceives an allocation of $150, and in Tier IV each company receives anallocation of $75. Finally, Fund D has 6000 companies equally dividedinto four tiers. In Fund D, Tier I, each company receives an allocationof $64.00, in Tier II each company receives an allocation of $48.00, inTier III each company receives an allocation of $32.00, and in Tier IVeach company receives an allocation of $16.

The investment trust shown in Table II divides 27.9% to the 120 largestcompanies, 25.1% to the next 480 largest companies, 24.4% to the next1400 companies, and 22.65% to the next 6000 companies. Furthermore, theratio of the largest weighting and the smallest weighting is 250.Therefore, the small cap and micro cap companies included in Fund C andFund D have a significant representation. This representation is muchlarger than for most index funds. For example, in Russell 3000® Index,the bottom 2000 stocks represent only 8% of the total funds invested.The investment trust shown in Table II is maintained without anyrebalancing for several years, usually more than five years. Thus, thebest performing medium cap, small cap and micro cap companies can growwithout being effectively sold as they grow. Furthermore, thisinvestment trust has a relatively large representation of small cap andmicro cap companies.

As with the prior example, the investment trusts including funds A, B, Cand D enables systematic investment across several segments of themarket. After purchasing the above-described stock portfolio, the trustis basically passive (no significant stock purchases, sales or exchangesof individual companies) in order to enable time and the laws ofcompounding to work for long-term investors.

According to another example, an investment trust has five funds, i.e.,Funds A, B, C, D, and E. Fund A has top 50 companies according to marketcapitalization. Fund B has next 150 companies, Fund C has next 400companies, Fund D has next 1,000 companies, and Fund E has the bottom2000 companies from the selected 3,600 companies. In each of the funds,the dollar allocation for all companies is the same (i.e., the companiesreceive the same weight coefficient). In Fund A, each of the 50 largestcompanies receives a dollar allocation of 25× allocation of a companyfrom Fund E; in Fund B, each of the 150 companies receives an allocationof 15×; in Fund C each of the 400 companies receives an allocation 8×;and in Fund D, each of the 1000 companies receives an allocation of 3×the allocation of a company from Fund E. That is, the respective weightcoefficients for funds A, B, C, D, and E are 25, 15, 8, 3 and 1. If thetotal of 1,170,000 is invested into this investment trust, for example,each company in Fund A will be allocated $2500; each company in Fund Bwill be allocated $1500; each company in Fund C will be allocated $800;each company in Fund D will be allocated $300; and each company in FundE will be allocated $100.

Referring to FIG. 5, Table III provides another example of an investmenttrust. This investment is based on 11 economic sectors and may includethe largest 1000 or 2000 or 3000 by market capitalization. For example,the largest 1000 companies are placed into 11 different economic sectors(i.e., Sector 1 through 11 shown in Table III). This investment trustincludes three separate funds, wherein Fund A includes the top decilecompanies for each sector, Fund B includes the next 3 deciles of theselected 1000 companies for each sector, and Fund C includes theremaining 60% of companies for each sector.

The present investment trust does not have in each Sector (or Tier) thesame number of companies, nor does each stock get the same dollarallocation. Furthermore, each sector gets a different total allocation.This allocation provides, for each economic sector, a different relativeweight for each of the Funds A, B and C. In general, a sector basedinvestment trust does not need to have as many as 11 sectors, or canhave more than 11 sectors. Furthermore, a sector based investment trustcan include broad sectors instead of including all sectors.

As described above, the investment trust includes funds A, B and C thatenable systematic investment across several sectors of the market. Afterpurchasing the above-described stock portfolio, regardless of the marketconditions, the trust is basically passive (no significant stockpurchases, sales or exchanges of individual companies) to enable timeand the laws of compounding to work for long-term investors.

Referring to FIG. 6, Table IV illustrates another example of aninvestment trust that can focus on one particular sector such astelecommunication, pharmaceuticals, biotechnology, steel,transportation, semiconductors, computer hardware, computer software,oil and gas, chemicals, cosmetics, food and beverage, retail, etc. Forexample, the investment trust shown in Table IV includes onlypharmaceutical and biotechnology stocks. This trust includes only oneFund divided into three tiers.

In the investment trust of Table IV, Tier 1 includes 30 stocks with thelargest market capitalization starting with Pfizer Inc. andGlaxoSmithKline having market capitalization of about $250 billion and$170 billion, respectively. Tier 2 includes next 60 companies ranked bymarket capitalization, and Tier 3 includes the next 120 companies. Eachtier uses a different weighting. In Tier 1, the stocks are weightedaccording to their bond rating (provided, for example, by Standard &Poor's), wherein the largest weighting is, for example, 4× the smallestweighting of stocks. The total purchase price for all stocks in Tier 1is $300,000. In Tier 2, the stocks are weighted equally each having thepurchase price of $2,500. In Tier 3, the stocks are weighted based onthe strength of their balance sheet ranking, i.e., the ratio of debt andtotal capitalization. In Tier 3, the largest weighted stock for thestrongest company is 2× the smallest weighted stock. The total purchaseprice for all stocks in Tier 3 is $100,000.

This investment trust enables systematic investment across severalsegments of the pharmaceutical and biotechnology sector. Afterpurchasing the above-described stock portfolio, regardless of the marketconditions, the trust is substantially passive to enable time and thelaws of compounding to work for long-term investors.

Referring to FIG. 7, Table V illustrates another example of aninvestment trust, wherein most of the US market (or another foreignmarket) is segmented into three (or more) funds based the companies'capitalization (i.e., the ratio of debt to total capitalization), andeach fund is divided into three (or more) tiers based on marketcapitalization. The companies are first ranked and then divided intoFunds A, B, and C as follows: Fund A includes the top 20% capitalizedcompanies, that is, companies with the strongest balance sheets measuredby the ratio of debt to total capitalization (i.e., the lowest ratio ofdebt to total capitalization). Fund B includes the next best 30%capitalized companies, and Fund C includes the bottom 50% capitalizedcompanies from the selected group of US companies. In Fund A, Tier 1includes the largest 15% of the market by market capitalization, Tier IIincludes the next 25% companies, and Tier III includes the remaining 60%of companies by market capitalization. Funds B and C include a similardifferentiation of the Tiers I, II and III, which is shown in Table V.

The investment trust shown in Table V enables systematic investmentacross several segments based on the balance sheet strength of theindividual companies. Thus a “popular” company with a very large marketcap but a large relative debt will be less represented than anothercompany with a smaller market cap but a smaller debt to total capitalratio. After purchasing the above-described stock portfolio, regardlessof the market conditions, the trust is substantially passive to enabletime and the laws of compounding to work for long-term investors.

The following illustrates another example of a long-term investmenttrust. This investment trust is divided into funds A, B, and C, andincludes a selected number of industries or sectors (e.g., 11 economicsectors that comprise the S&P sectors). The individual funds and sectorsare arranged in a similar way as shown in Table III. Fund A includes thelargest 10% of companies within each sector, wherein the ranking isbased on one or several of the following: the annual sales, annualearnings, market capitalization, or book value. Fund B includes the next30% of companies within each sector, and similarly Fund C includes theremaining 60% of companies within each sector determined the same way asfor Fund A. The individual stocks within each fund and sector may beweighted equally or as done in Table I, II or III.

In this investment trust, for example, if a sector constitutes 30% ofthe market capitalization of the entire stock market then, ⅓ of theinvested money is allocated into this sector is invested into Fund A, ⅓is invested into Fund B, and the final ⅓ is invested into Trust C.

The following illustrates another example of a long-term investmenttrust based on price-to-earnings ratio. This long-term investment trustincludes four funds. The trust is constructed to invest strategically inthe entire market without having a “growth” or “value” bias, or investin predominantly growth or value stocks. Specifically, the investmenttrust includes Funds A, B, C, and D. Fund A contains the most expensive25% companies ranked by the ratio of price-to-earnings for each industrygroup or economic sector. Fund B includes the next 25% companies rankedby the ratio of price-to-earnings for each industry group or economicsector. Fund C includes the next 25% companies ranked the same way foreach industry group or economic sector. Finally, Fund D includes theleast expensive (lowest) 25% companies ranked by the ratio ofprice-to-earning for each industry group or economic sector.

Alternatively, this investment trust includes Funds A, B, C, and Dranked by the ratio of price-to-sales. Specifically, Fund A includes themost expensive 25% companies ranked by the ratio of price-to-sales foreach industry group or economic sector. Fund B includes the next mostexpensive 25% companies ranked by the ratio of price-to-sales for eachindustry group or economic sector. Fund C includes the next 25%companies ranked the same way for each industry group or economic.Finally, Fund D includes the least expensive (lowest) 25% companiesranked by the ratio of price-to-sales for each industry group oreconomic sector. Alternatively, the companies in any fund or severalfunds may be selected or may be ranked by the price-to-book ratio.

This investment trust enables systematic investment across severalsegments based on the ratio of price-to-earnings or price-to-sales (orprice-to-book) for the individual companies. After purchasing the stockportfolio of Funds A, B, C or D, regardless of the market conditions,the trust is substantially passive to enable time and the laws ofcompounding to work for long-term investors. The trust can offer asingle type of shares, or can offer four types of shares correspondingto Funds A, B, C or D. The single type shares offer a systematicinvestment across the broad market based on a value measure.Alternatively, an investor can buy only shares of Fund A (or only sharesof Funds A and B) to acquire in order to allocate her/his money justinto a “growth” portfolio, or can buy only shares of Fund D (or onlyshares of Funds C and D) to acquire an in order to allocate her/hismoney just into a “value” portfolio.

According to another example, an investment trust has five funds, i.e.,Funds A, B, C, D, and E. Fund A has top 50 companies according to marketcapitalization. Fund B has next 150 companies, Fund C has next 400companies, Fund D has next 1,000 companies, and Fund E has the bottom2,000 companies from the selected 3,600 companies. In each of the funds,the dollar allocation for all companies is the same. In Fund A, each ofthe 50 largest companies receives a dollar allocation of 25× allocationof a company from Fund E; in Fund B, each of the 150 companies receivesan allocation of 15×; in Fund C each of the 400 companies receives anallocation 8×; and in Fund D, each of the 1000 companies receives anallocation of 3× the allocation of a company from Fund E. If the totalof $1,170,000 is invested into this investment trust, for example, eachcompany in Fund A will be allocated $2500; each company in Fund B willbe allocated $1500; each company in Fund C will be allocated $800; eachcompany in Fund D will be allocated $300; and each company in Fund Ewill be allocated $100.

According to another example, in any of the above-described funds, theallocation of the individual securities is based on weight coefficientsassigned using geometric series or arithmetic series (or other seriessuch as Fourier series, Taylor series, or other math algorithms). Forexample, one possible array of weight coefficients could entail adoubling in weight coefficient from one group to the next (e.g. 1×, 2×,4×, 8×, 16× and 32×). The inverse of this geometric series could beutilized to determine the number of securities in each of theprospective groups. Specifically the number of securities in the groupwith the 32:1 weight coefficient would be just 1/32 of the number ofsecurities found in the group with the 1:1 weight coefficient.

Alternatively, according to another example, the weight coefficients areassigned based on an algorithm that entails assigning a larger weightcoefficient to groups with smaller number of stocks, but the weightcoefficient and group size coefficients would not be specified as afunction of an arithmetic series, geometric series, or other series. Forinstance, if 4 separate trusts were formed (e.g. companies 1 through100, 101 to 300, 301 to 700 and 701 to 1800) and the top 25 percent ineach group could receive weight coefficients of 7:1, and the smallest25% in the group and the middle 50% could receive weight coefficients3:1.

The entire process of creating and managing the above described funds ortrusts can be computerized requiring only a minimal input by a user. Thecomputer system includes a dynamic management system arranged to createand manage the investment portfolios. The computer system connects, forexample, to a trade execution computer. The computer system generates alist of trades to be made through execution of appropriate conventionalsoftware. The trades are transmitted via the communications network forexecution. The computer system provides data processing for monitoringand recording the information flow and data and making all calculationsnecessary for maintaining set of different portfolios. Data processingsystem provides for a daily calculation of assets for the individualfunds or trusts. The data processing system also tracks all the relevantdata determined on a periodic basis (month, week, day, or an hour) forthe portfolio, determines aggregate year-end income (including capitalgains or losses) for accounting and for tax purposes for the portfolioand for each fund.

The individual portfolios may be part of a pension or retirement accountsuch as IRA, Keogh, S.E.P., or corporate pension plan. The investmentsmay also include the purchase of tax-favored investments such as lifeinsurance or annuities which earnings on premium payments or insiderbuildup and not taxed until they are withdrawn. Furthermore, due to thepossible diversification and/or other above-described features, thepresent method, system and investment product are well suited forinvesting social security funds by the government, or individuals onceenabled by a statute.

The above-described funds or trusts use a novel, buy and hold approachthat takes advantage of compounding over many years or even decades. Theabove-described investment approach is passive since it is based onfixed portfolio. Furthermore, the above-described investment approach isalso dynamic since new funds and trusts can be created using the samemethodology at regular intervals so that investors get a practical wayof systematically investing over time using a consistent strategy. Inshort, new funds can be created over regular periodic intervals and theycan include companies that meet specified market capitalization,geographic and/or valuation criteria.

Based on different creation times, the funds and trusts include newpotential “winners”. In general, “winners” overwhelm “losers” over longperiods of time (e.g. 2, 3, 4 or more years) and drive performance.While it is impossible to know the future investment returns forindividual stocks and thus select only small companies that perform atan above average rate the above approach enables systematic inclusion ofall future “winners” at much larger representations than otherinvestment vehicles. Note that no stock is limited to grow over timerelative to other stocks in the portfolio (i.e., there is no relativeweighting limit for a high-performing stock relative to other stocks).

The above approach enables these high-performing “winners” to runwithout effectively selling them when they become too large to qualifyin index funds as “micro cap” or “small cap” stocks. The above approachalso enables low cost investing and takes advantage of the magic ofcompounding, wherein the geometric average is always greater than thearithmetic and is driven by the above average growth component(s).

Numerous other embodiments not described in detail here can apply theprinciples described to particular applications and are within the scopeof the claims.

1. A method of creating an investment fund or an investment trust,comprising acts of: using a computer to identify, according to one ormore criteria, a plurality of financial instruments publicly traded onan exchange, each financial instrument being associated with a company;grouping the plurality of financial instruments, based on marketcapitalization according to a criterion, into at least a first group offinancial instruments and a second group of financial instruments, eachfinancial instrument of the first group of financial instruments beingassociated with a company having a market capitalization that is largerthan the market capitalization of each company associated with eachfinancial instrument of the second group; using a computer to allocate aweight coefficient to each of said identified financial instrumentsbased on a value of the market capitalization of each associated companyrelative to values of the market capitalization of others of thecompanies associated with the plurality of identified financialinstruments; wherein allocating weight coefficients includes assigning aweight coefficient to each of the plurality of financial instrumentssuch that for substantially any financial instrument associated with afirst company having a market capitalization that is larger than amarket capitalization of a second company, the financial instrumentassociated with the first company is assigned a weight coefficient thatis greater than or substantially equal to the weight coefficientassigned to the financial instrument associated with the second company;wherein allocating weight coefficients includes assigning a weightcoefficient to each of the plurality of financial instruments such thatfor each of the financial instruments of the first group, a ratio of (a)a first weight coefficient assigned to a first financial instrument ofthe first group to (b) a second weight coefficient assigned to a secondfinancial instrument of the second group is less than a ratio of (c) thevalue of the market capitalization of the company associated with thefirst financial instrument to (d) the value of the market capitalizationof the company associated with the second financial instrument; creatingan investment fund or an investment trust based on the identifiedfinancial instruments and the allocated weight coefficients by using acomputer to purchase an amount of each of the identified financialinstruments, the purchased amount being based on the weightcoefficients; and substantially maintaining said purchased financialinstruments for more than two years.
 2. The method of claim 1, whereinallocating a weight coefficient to each of the identified financialinstruments further comprises selecting a maximum ratio of a largestweight coefficient relative to a smallest weight coefficient, whereinthe maximum ratio is less than a ratio of i) the market capitalizationof the company associated with the financial instrument to which thelargest weight coefficient is assigned to ii) the market capitalizationof the company associated with the financial instrument to which thesmallest weight coefficient is assigned.
 3. The method of claim 1wherein substantially maintaining said purchased financial instrumentsfor more than two years includes allowing reinvestment of dividendsduring the more than two years.
 4. The method of claim 1 whereinsubstantially maintaining said purchased financial instruments for morethan two years includes receiving new shares from spin-offs, mergers oracquisitions without subsequent selling during the more than two years.5. The method of claim 1 wherein substantially maintaining saidpurchased financial instruments for more than two years includes puttingcash proceeds into a money market fund during the more than two years.6. The method of claim 1 wherein substantially maintaining saidpurchased financial instruments for more than two years includesdistributing proceeds to investors during the more than two years. 7.The method of claim 1 wherein identifying financial instrumentsaccording to one or more criteria includes identifying stocks of the onethousand publicly traded companies having the largest one thousandmarket capitalizations and choosing a market segment.
 8. The method ofclaim 1 wherein identifying financial instruments according to one ormore criteria includes identifying stocks of the three thousand publiclytraded companies having the largest three thousand marketcapitalizations and choosing a market segment.
 9. The method of claim 1wherein identifying financial instruments according to one or morecriteria includes identifying stocks of the five thousand publiclytraded companies having the largest five thousand market capitalizationsand choosing a market segment.
 10. The method of claim 1 whereinidentifying financial instruments according to one or more criteriaincludes identifying stocks from a particular sector.
 11. The method ofclaim 10 wherein said sector is one of the following: health care,information technology, telecommunications, energy, utilities, andtransportation.
 12. The method of claim 1 wherein allocating a weightcoefficient to each of the identified financial instruments includesdividing the identified financial instruments into a plurality of groupsbased on the market capitalizations of the companies associated with theidentified financial instruments and, for each of the plurality ofgroups, allocating the same weight coefficient for all of the financialinstruments in the group.
 13. The method of claim 12 wherein theplurality of groups comprises exactly three groups, and a first group, asecond group and a third group include 20 percent, 60 percent, and 20percent, respectively, of the plurality of financial instruments. 14.The method of claim 13 wherein the purchase amount of each financialinstrument in said first group is three times the purchase amount ofeach financial instrument in said third group.
 15. The method of claim14 wherein the purchase amount of each financial instrument in saidsecond group is two times the purchase amount of each financialinstrument in said third group.
 16. The method of claim 1 wherein saidfinancial instruments include one or more of the following: commonstocks, derivatives, stock options, commodity futures, and bonds. 17.The method of claim 1, wherein creating an investment fund or aninvestment trust comprises creating a mutual fund.
 18. The method ofclaim 1, wherein creating an investment fund or an investment trustcomprises creating a closed-end fund.
 19. The method of claim 1, whereincreating an investment fund or an investment trust comprises creating aunit investment trust.
 20. At least one computer readable medium havingstored thereon instructions which, when executed by a processor,implement a method comprising: identifying, according to one or morecriteria input by a user, a plurality of financial instruments publiclytraded on an exchange, each financial instrument being associated with acompany; grouping the plurality of financial instruments, based onmarket capitalization according to a criterion, into at least a firstgroup of financial instruments and a second group of financialinstruments, each financial instrument of the first group of financialinstruments being associated with a company having a marketcapitalization that is larger than the market capitalization of eachcompany associated with each financial instrument of the second group;allocating a weight coefficient corresponding to each of said identifiedfinancial instruments based on a value of the market capitalization ofeach associated company relative to values of the market capitalizationof others of the companies associated with the plurality of identifiedfinancial instruments; wherein allocating weight coefficients includesassigning a weight coefficient to each of the plurality of financialinstruments such that for substantially any financial instrumentassociated with a first company having a market capitalization that islarger than a market capitalization of a second company, the financialinstrument associated with the first company is assigned a weightcoefficient that is greater than or substantially equal to the weightcoefficient assigned to the financial instrument associated with thesecond company; wherein allocating weight coefficients includesassigning a weight coefficient to each of the plurality of financialinstruments such that for each of the financial instruments of the firstgroup, a ratio of (a) a first weight coefficient assigned to a firstfinancial instrument of the first group to (b) a second weightcoefficient assigned to a second financial instrument of the secondgroup is less than a ratio of (c) the value of the market capitalizationof the company associated with the first financial instrument to (d) thevalue of the market capitalization of the company associated with thesecond financial instrument; indicating, based on the weightcoefficients, an amount of each of the identified financial instrumentsto be purchased and held for more than two years.
 21. The method ofclaim 1, wherein identifying a plurality of financial instrumentscomprises identifying at least fifty financial instruments.
 22. Themethod of claim 1, wherein substantially maintaining said purchasedfinancial instruments for more than two years comprises substantiallymaintaining said purchased financial instruments for more than threeyears.
 23. The method of claim 1, wherein substantially maintaining saidpurchased financial instruments for more than two years comprisessubstantially maintaining said purchased financial instruments for atleast ten years.
 24. The method of claim 1, wherein substantiallymaintaining said purchased financial instruments for more than two yearscomprises substantially maintaining said purchased financial instrumentsfor more than two years.
 25. The method of claim 1, wherein identifyingfinancial instruments includes identifying growth stocks.
 26. The methodof claim 1, wherein identifying financial instruments includesidentifying value stocks.
 27. The method of claim 1 wherein purchasingthe identified financial instruments comprises purchasing the identifiedfinancial instruments over time based on said initially allocated weightcoefficients.
 28. The method of claim 1 wherein identifying financialinstruments according to one or more criteria includes identifyingfinancial instruments associated with the one thousand publicly tradedcompanies having the largest one thousand market capitalizations. 29.The method of claim 1 wherein identifying financial instrumentsaccording to one or more criteria includes identifying financialinstruments associated with the three thousand publicly traded companieshaving the largest three thousand market capitalizations.
 30. The methodof claim 1 wherein identifying financial instruments according to one ormore criteria includes identifying financial instruments associated withthe five thousand publicly traded companies having the largest fivethousand market capitalizations.
 31. The method of claim 2 wherein saidmaximum ratio is
 100. 32. The method of claim 1, wherein the purchasedamount of each of the identified financial instruments is based only onthe weight coefficients and a total amount of all the identifiedfinancial instruments being purchased.
 33. The method of claim 1,wherein identifying, according to one or more criteria, a plurality offinancial instruments publicly traded on an exchange comprisesidentifying a plurality of financial instruments publicly traded on anexchange according to one or more criteria input by a user.
 34. Themethod of claim 12 wherein the selected financial instruments includeone or more of the following: common stocks, derivatives, stock options,commodity futures, and bonds.
 35. The computer readable medium of claim20, wherein the identified financial instruments associated withcompanies having a market capitalization that is amongst the bottom onethird of the market capitalizations of the companies that are associatedwith the plurality of financial instruments are allocated weightcoefficients that assure that at the time of purchase, at least fifteenpercent of the entire value of all of the financial instruments to bepurchased is allocated to the financial instruments associated withcompanies having a market capitalization that is amongst the bottom onethird of the market capitalizations of the companies that are associatedwith the plurality of financial instruments.
 36. The method of claim 1,wherein allocating a weight coefficient to each of said identifiedfinancial instruments based on a value of the market capitalization ofeach associated company relative to values of the market capitalizationof others of the companies associated with the plurality of identifiedfinancial instruments comprises: allocating a weight coefficient to eachof said identified financial instruments based only on a value of themarket capitalization of each associated company relative to values ofthe market capitalization of others of the companies associated with theplurality of identified financial instruments.